Berkshire Hathaway’s Strong Performance in 2024
Warren Buffett’s Berkshire Hathaway has reported impressive financial results for the fourth quarter of 2024, showcasing significant growth in its operating businesses, especially in the insurance sector. This increase in earnings, coupled with substantial cash reserves, highlights the company’s strong position in the market.
Surge in Operating Earnings
Berkshire Hathaway experienced a remarkable 71% rise in its operating profits for the last three months of 2024. The company’s operating profit reached $14.527 billion, mainly due to a massive 302% increase in insurance underwriting, which amounted to $3.409 billion. Additionally, the income from insurance investments grew by almost 50%, totaling $4.088 billion.
For the entire year, Berkshire’s operating earnings were up 27%, totaling $47.437 billion. Warren Buffett, the chairman and CEO, mentioned in his annual letter to shareholders that while 53% of their 189 operating businesses saw a drop in earnings, the gains in investment income and the performance of their insurance business, particularly GEICO, contributed positively.
Financial Impact of Wildfires
Despite the impressive earnings, Berkshire Hathaway cautions that the recent wildfires in Southern California will lead to an estimated pre-tax loss of around $1.3 billion for their insurance unit. This acknowledgment highlights the unpredictable nature of insurance, where external events can significantly affect profitability.
Record Cash Reserves
Berkshire Hathaway concluded 2024 with an impressive cash holding of $334.2 billion, an increase from $325.2 billion at the end of the previous quarter. This strong cash position is vital as Buffett continues his search for large investment opportunities. He defended the high cash reserves in his letter, reassuring shareholders that the majority of their funds remain invested in equities.
Buffett explained, "Even though some commentators see our cash position as extraordinary, most of your money is still in stocks. Our ownership in marketable equities decreased last year from $354 billion to $272 billion, but the worth of our non-quoted controlled equities increased and is still significantly higher than the marketable portfolio."
Investment Gains and Challenges
Berkshire Hathaway also revealed that investment gains greatly slowed in the fourth quarter, dropping to $5.167 billion from $29.093 billion the previous year. The company sold a portion of its stake in Apple throughout 2024, which indicates a more cautious approach to its stock investments.
It’s important to note that Berkshire frequently mentions in its earnings reports that quarterly gains or losses from investments can vary greatly and may not provide a clear representation of the company’s true financial situation. This caution serves to inform investors, especially those unfamiliar with accounting principles.
Quarterly and Annual Earnings Overview
In total, Berkshire Hathaway’s earnings for the fourth quarter came in at $19.694 billion, a significant decrease of 47% compared to $37.574 billion in the same quarter of the previous year. For the full year, the company’s total earnings reached $88.995 billion, which is a 7.5% decline from $96.223 billion in 2023. This overall dip in earnings may reflect a combination of various factors, including market conditions and strategic investment decisions taken during the year.
Conclusion
Berkshire Hathaway’s performance in 2024 showcases both its strengths and challenges. With a robust increase in operating profits mainly driven by insurance, along with record cash reserves, the company is well-positioned to navigate future market uncertainties. However, external factors like natural disasters remind investors of the unpredictable nature of the business landscape. As Berkshire continues to adapt its strategies, shareholders can take comfort in the company’s long-standing commitment to investing wisely for the long term.
